Tuesday, March 2, 2010

I'm sick of debt

I'm writing today from a place of frustration. I have been pursuing what I think of as a fairly simple and frugal lifestyle for quite a number of years now. I can remember discovering the Tightwad Gazette while I still lived in New York, which is over 15 years ago. I don't buy expensive clothes or a lot of video games or fancy electronic equipment. We have two cars: a 12 year old beater and a 6 year old slightly-less-beater. We very rarely eat out. We don't go to movies very much or other entertainment unless someone gives us tickets. I don't really even give that much to charity, in the great scheme of things. I have thought and written about frugality and sustainability extensively and have tried to apply most of the low-hanging fruit principles of the frugal lifestyle to my own life.

Yet we continue to have a hard time staying within our monthly budget, and we continue to struggle to pay down a substantial amount of credit card debt. I don't understand it, and I'm feeling really frustrated about it.

The thing is, while DW's paychecks have been a little inconsistent lately, she's earning a good deal more now than she was last year at this time, meaning things should be getting easier. I put a few numbers into a simple budget spreadsheet last night, and it looks to me like, counting just our fixed expenses and including debt service, we should be running a surplus of a couple hundred dollars every month. But we're not - we consistently have to take money from our emergency fund to make the monthly nut. The conclusion I reach is there are substantial random (unbudgeted) expenses that are hurting us. And I'm not even really sure what they are.

The reason I stopped working on this blog was because I felt that I didn't have anything to teach anyone because I wasn't getting anywhere. I picked it up again because just letting things go on this way is not going to solve my problem. DW and I have to raise the level of seriousness with which we think about and address this problem.

The first step has to be figuring out where the money's going, and getting to the point where we're living within our monthly means. This means squeezing our monthly expenses, such as canceling cable and changing auto insurers, but is also means figuring out where we're spending this mysterious money that isn't in the monthly plan.

The second thing (well, a related thing) would be to build our emergency fund back up to about $2,000, so that extraordinary expenses - such as auto repairs - don't have to go on the plastic.

And the third thing is paying down this damned credit card debt. I went back and looked a previous posting I made about the debt snowflake, which is where you pay the minimums on all your debts except one, and you put all extra available funds into the highest priority debt. At that time (October 2008) our two cards had about $7,000 each on them, and I predicted that if I followed the snowflake program the debt on the highest interest rate card (mine) would be retired by ... June 2010. Well, I'm here to tell ya, it ain't gonna be. As of March 1, my card at about $5,700, and DW's is up to almost 9. So we've essentially gotten nowhere in a year and a half. And it's because we keep putting non-fixed but reasonably expectable expenses - kids' clothing and shoes, car repairs - on the card. And I of course debted the equipment for the TV transition.

I redid the snowflake the other day, and it's basically the same story as it was the last time: if we do it as prescribed, and maybe throw in another month's payment with our tax refund, my card will be retired in a year, and DW's a year after that. That of course depends on not using them anymore.

To recap, here are the steps:
1 - get our monthly expenses under DW's and my combined income, including debt service and the snowflake payments, and including reasonably expectable ongoing expenses that we've been putting on the cards. This will have to be a combination of squeezing fixed expenses and figuring out and eliminating all the pissy little expenses that don't present themselves so easily.

2 - build the emergency fund back up to $2,000 so there's a some leeway for larger extraordinary expenses such as car repairs.

3 - Discontinuing use of the credit cards and paying them down with the debt snowflake method.

The thing is, when I look at what's supposed to happen after the two cards and DW's car are paid off, there's actually quite a bit of money there, even with ongoing payments on my student loan debt stretching off to the horizon. We make a decent, middle-class salary, certainly enough that we should be able to save a little money and even buy stuff with cash once in a while. Right now, that has to be the goal - and we need to get serious about meeting it.

1 comment:

thomast said...

We're in the somewhat the same boat, though having been much less diligent about even basic budgeting until very recently. One tool that seems to be helping a lot is http://www.mint.com. Some people find it too sketchy - you have to give it your online banking credentials, and it goes in and d/l's your activity, and categorizes expenses automatically, based in part on how others have categorized expenses from those vendors. You have to train it a bit, but it's way less tedious than categorizing everything manually in Quicken or something. They have interactive graphs that let you drill down into the different categories. After a few months, we were shocked at how much we're spending just on groceries, especially since we knew we were over-eating-out. But we had that info.

For cash expenses, I've been using http://tweetwhatyouspend.com/, which lets me send a Twitter direct message to record cash expenses. I have a text message template in my phone to make it easier. No easy integration between Mint and TWYS, but together they give a good overall picture of where the money is going. But we have a lot of work to do still on actually simplifying and reining in the spending.